1 Center for American Progress | Federal Coal Leasing in the Powder River Basin

Federal Coal Leasing

in the Powder River Basin
A Bad Deal for Taxpayers
By Nidhi Thakar and Michael Madowitz July 29, 2014
Te Powder River Basin, stretching across southeast Montana and northeast Wyoming,
produces more coal than any other region in the United States. It is also home to the
single-richest coal reserves in the country, containing an estimated 162 billion short tons
of coal that are recoverable under the U.S. Geological Surveys projections for future min-
ing technology and coal prices.
1
* By and large, the vast majority of this coal belongs to
U.S. taxpayers and is managed on their behalf by the Department of the Interiors Bureau
of Land Management, or BLM. Approximately 40 percent of all coal produced in the
United States comes from BLM-managed lands, with a staggering 87 percent of it mined
in the Powder River Basin.
2

While the open-pit mines that stretch across the Powder River Basin have long been a
source of cheap fuel, they are also one of the nations largest sources of carbon pollution.
In fact, 13 percent of all U.S. fossil-fuel emissions stem from Powder River Basin coal,
which is burned in more than 200 power plants across 35 states.
3
Tis is equivalent to
the annual emissions of 70 percent of all cars registered in the United States, or 1.5 times
the annual emissions of Saudi Arabia.
4
In fact, the Powder River Basin alone ranks glob-
ally as the seventh-largest emiter of carbon pollution annually, trailing six countries
China, the rest of the United States, India, Russia, Japan, and Germany.
5

While it is evident that Powder River Basin coal is a major contributor to U.S. climate
change and carbon pollution, what is less apparent are the real economic and social
costs of burning this coaland the true cost borne by U.S. taxpayers, which has long
been overlooked by policymakers.
2 Center for American Progress | Federal Coal Leasing in the Powder River Basin
Undervaluing Powder River Basin coal
For decades, the BLM has run a fundamentally noncompetitive leasing program,
which has been a boon to industry. Since 1990, 96 of the 107 coal-lease sales held
by the BLM have had only one bidder, despite a clear mandate under the Mineral
Leasing Act of 1920 that federal coal leases be ofered competitively. (see Figure 1)
6

Tis means that almost 90 percent of all federal coal-lease sales over the past 25 years
have been noncompetitive.**
Coal companies that operate in the Powder River Basin beneft from the BLMs coal
program because, in large measure, they have dictated the terms of federal coal leas-
ing for decades. Although the BLM is obligated to hold competitive lease sales and
conduct rigorous environmental reviews in coal-producing regions, the BLM in 1990
ofcially decertifed the Powder River Basin as a historic coal production region.
7

Decertifcation has efectively given coal companies control over the federal leasing pro-
cess, allowing them to select which tracts to lease, rather than having to follow a regional
leasing plan where the secretary of the interior controls the processas was envisioned
by the Federal Coal Leasing Amendments Act of 1976.
8
Tis long-overlooked policy
exemption, made by former President George H.W. Bushs secretary of the interior,
Manuel Lujn Jr., has resulted in diminished competition, reduced environmental
review of proposed coal leases, and lax oversight.
Consequently, Powder River Basin coal is signifcantly undervalued and sells at a frac-
tion of the cost of coal produced in other regions of the United States. Coal produced in
the Appalachian region, for example, sells for $63 per short ton, but Powder River Basin
coal sells for a shockingly low $13 per short ton$50 less per short ton. (see Figure 2)
Even when accounting for the higher energy content of Appalachian coal, Powder River
Basin coal is still drastically cheaper, costing just $0.74 per million British thermal units,
or BTUs, versus $2.46 per million BTUs for Appalachian coal. (see Figure 2)
FIGURE 1
Anti-competitive federal coal leasing practices since 1990
The number of federal coal tracts leased from 1990 to 2012, sorted by number of bidders
Coal contracts leased with a single bidder Coal contracts leased with two bidders
Coal contracts leased with at least three bidders
Source: U.S. Government Accountability Ofce, "Coal Leasing: BLM Could Enhance Appraisal Process, More Explicitly Consider Coal Exports,
and Provide More Public Information" (2013), p. 17, available at http://www.gao.gov/assets/660/659801.pdf.
96 10 1
3 Center for American Progress | Federal Coal Leasing in the Powder River Basin
Te domestic price of Powder River Basin coal is even more startling when viewed in
the context of the global market. Internationally, Power River Basin coal sells for fve
times more than it does domestically. In China, for example, Powder River Basin coal
fetches $69 per short ton.
9
And demand for domestic coal on the global market contin-
ues to rise.
10
In 2012 alone, the United States exported more than 125 million short tons
of domestic coal.
11
Moreover, the demand for exports continues to grow, with U.S. coal
companies that operate in the Powder River Basin, such as Arch Coal, Inc., pursuing
ports in Oregon and Washington to export as much as 150 million short tons of coal per
year to Asia.
12

Te noncompetitive practices of the BLM coal-leasing program and the agencys
undervaluation of Powder River Basin coal are well documented. In 2013, the
Government Accountability Ofce, or GAO, and the U.S. Department of the Interiors
Ofce of Inspector General issued separate reports in which they each found major
defciencies in the coal-leasing program and concluded that it lacks rigor and over-
sight.
13
In particular, both noted that the BLM employs a deeply fawed process to
assess the fair market value of federal coal.
Te artifcially low market price of Powder River Basin coal costs U.S. taxpayers in several
ways. Although the GAO and the Ofce of Inspector General refrained from assessing
the full loss to taxpayers from the noncompetitive nature of BLMs coal-leasing program,
a third-party review estimated that over the past 30 years, the governments undervalua-
tion of coal may have cost taxpayers upward of $30 billion in lost revenue.
14
Whats more,
taxpayers are missing out on royalty payments that would accrue if the coal were sold at
a higher price on the market. A short ton of coal sold at $60 per short ton, for example,
provides a 12.5 percent royalty payment of $7.50 per short ton for taxpayers. However, a
short ton of coal sold at $13 per short ton returns a 12.5 percent royalty payment of just
$1.63 per short ton. With hundreds of millions of tons of federal coal sold annually from
the Powder River Basin, these losses to American taxpayers add up quickly.
Powder River Basin
Appalachian
Powder River Basin
Appalachian
FIGURE 2
Cost comparison of Powder River Basin and Appalachian coal
Coal spot prices measured in
dollars per short ton, 2014
Coal spot prices measured in dollars per
million British thermal units, or BTU, 2014

Source: U.S. Energy Information Administration, "Average
weekly coal commodity spot prices," available at
http://www.eia.gov/coal/news_markets/ (last accessed
July 2014).
Source: Authors calculations based on U.S. Energy Information
Administration, "Average weekly coal commodity spot prices,"
available at http://www.eia.gov/coal/news_markets/ (last accessed
July 2014).
$13 $0.74
$63 $2.52
4 Center for American Progress | Federal Coal Leasing in the Powder River Basin
Social cost of carbon from burning Powder River Basin coal
Te true cost of Powder River Basin coal is much more than the billions of dollars in
lost revenue that the federal government fails to collect on behalf of U.S. taxpayers; that
is only half the story. Te cost to society for mining and burning Powder River Basin
coalits social costis the other half. Te social cost of carbon, as defned in the
2013 Economic Report of the President, is the monetized estimate of damage caused by
emiting an additional ton of carbon dioxide in one year.
15
Damage can include immedi-
ate and future impacts to health, property, agriculture, the value of ecosystem services,
and other welfare costs of climate change.
Burning coal emits signifcant pollutants with signifcant social costprincipally carbon
pollution, smog-forming pollutants, and heavy metals. Tese pollutants degrade our air
and our health and accelerate climate change, adversely afecting the environment now
and well into the future. Because the social cost of carbon for extracting and combust-
ing coal captures these various efects, not to mention the added climate efects, the true
price of Powder River Basin coal is much higher than the revenue generated from its sale.
By our estimates, based on just carbon pollution, the social cost of Powder River Basin
coal, no mater where it is burned, is currently $62 per short ton4.5 times the current
domestic market price for this coal. Tis estimate will rise to more than $70 per short
ton by 2020.
16
Including other social and health costs, as well as foregone tax revenue,
would lead to a much higher fgure.
Health costs to society refect premature deaths, lost days of work, and medical treat-
ment costs. Tese costs to society fall heavily on people closest to where coal is burned
and can vary based on the technology installed at a power plant, population density near
plants, and a variety of other factors.
It is noteworthy that the applicability of the social cost of carbon to Powder River Basin
coal is not merely speculative. Te BLM and federal courts have determined that the
costs of carbon emissions from the mining and combustion of coal result in impacts that
must be accounted for as the social cost of carbon.
17
All in all, depressed market valuations, an anti-competitive leasing program, low
royalty rates that have not changed in decades, and unaccounted for social and
environmental costs all mean that U.S. taxpayers are paying heavily to sell, mine, and
burn Powder River Basin coal. When the social cost of carbon for burning this coal at
$62 per short ton is taken into account, the federal government is not only foregoing
billions of dollars in lost revenue but is also selling publicly owned coal at a net social
loss of at least $49 per short ton. (see Figure 3)
5 Center for American Progress | Federal Coal Leasing in the Powder River Basin
Even using BLMs lower estimate of 388 million tons of federal coal sold from the
Powder River Basin in 2012, the total net social loss that year was more than $19 billion
dollars.
18
Tese losses will continue to reach into the hundreds of billions of dollars if
Powder River Basin coal remains so highly undervalued and production continues at
similar levels to today.
Te botom line is that the government is selling federal coal at a huge loss, subsidiz-
ing an industry to produce carbon pollution, and seemingly has no meaningful plan to
change course. In its current form, the federal coal-leasing program in the Powder River
Basin isfrom top to botoma bad deal for U.S. taxpayers.
Nidhi Takar is Deputy Director of the Public Lands Project at the Center for American
Progress. Michael Madowitz is an Economist at the Center. Nathan Joo, an intern at the
Center, also contributed to this column.
* Correction, July 29, 2014: Tis issue brief has been corrected to clarify under what circum-
stances coal in the Powder River Basin is recoverable.
** Correction, July 30, 2014: Tis issue brief has been corrected to refect that the referenced
coal sales are national.
Market price
Social cost of carbon
Current net social benet from
sale of Powder River Basin coal*
$13
$62
FIGURE 3
The true costs of Powder River Basin coal
Dollars per short ton

*Estimate excludes social cost of noncarbon pollution and lost revenue and royalties due to underpricing of Powder River Basin coal.
Source: U.S. Energy Information Administration, "Average weekly coal commodity spot prices," available at http://www.eia.gov/coal/news_
markets/ (last accessed July 2014); Author's calculations based on Interagency Working Group on the Social Cost of Carbon, "Technical Support
Document: Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866" (2013), available at
http://www.whitehouse.gov/sites/default/fles/omb/assets/inforeg/technical-update-social-cost-of-carbon-for-regulator-impact-analysis.pdf.
-$49
6 Center for American Progress | Federal Coal Leasing in the Powder River Basin
Endnotes
1 U.S. Geological Survey, USGS Estimates 162 Billion Short
Tons of Recoverable Coal in the Powder River Basin, Press
release, February 26, 2013, available at http://www.usgs.
gov/newsroom/article.asp?ID=3518&from=rss#.U8gdW-
CTD8dV.
2 Authors calculations are based on 2012 data from the U.S.
Energy Information Administration and the U.S. Department
of the Interiors Ofce of Natural Resources Revenue. See
U.S. Energy Information Administration, Coal Data Browser,
available at http://www.eia.gov/beta/coal/data/browser/
(last accessed July 2014); Ofce of Natural Resources Rev-
enue, Statistical Information, available at http://statistics.
onrr.gov/ReportTool.aspx (last accessed July 2014).
3 WildEarth Guardians, The Powder River Basin
A Root Contributor to Global Warming, avail-
able at http://www.wildearthguardians.org/site/
PageServer?pagename=priorities_climate_energy_coal_
powder_river_global_warming#.U8ghEiTD8dU (last
accessed July 2014).
4 Authors calculations using data from the World Bank,
the Environmental Protection Agencys Greenhouse Gas
Equivalencies Calculator, and the Bureau of Transportation
Statistics. See World Bank, Data: CO2 emissions (kt), avail-
able at http://data.worldbank.org/indicator/EN.ATM.CO2E.
KT/countries?order=wbapi_data_value_2010+wbapi_data_
value+wbapi_data_value-last&sort=desc (last accessed July
2014); U.S. Environmental Protection Agency, Greenhouse
Gas Equivalencies Calculator, available at http://www.epa.
gov/cleanenergy/energy-resources/calculator.html#results
(last accessed July 2014); Research and Innovative Technol-
ogy Administration, Table 1-11: Number of U.S. Aircraft, Ve-
hicles, Vessels, and Other Conveyances, available at http://
www.rita.dot.gov/bts/sites/rita.dot.gov.bts/fles/publica-
tions/national_transportation_statistics/html/table_01_11.
html (last accessed July 2014).
5 Authors calculations are based on data from the World
Bank. See World Bank, Data: CO2 emissions (kt).
6 U.S. Government Accountability Ofce, Coal Leasing: BLM
Could Enhance Appraisal Process, More Explicitly Consider
Coal Exports, and Provide More Public Information (2013);
Bureau of Land Management, Coal Operations, available at
http://www.blm.gov/wo/st/en/prog/energy/coal_and_non-
energy.print.html (last accessed July 2014).
7 Juliet Eilperin, Powder River Basin Coal Leasing Prompts IG,
GAO reviews, The Washington Post, June 24, 2012, available
at http://www.washingtonpost.com/national/health-
science/powder-river-basin-coal-leasing-prompts-ig-gao-
reviews/2012/06/24/gJQA7xSR0V_story.html.
8 Bureau of Land Management, Powder River Basin Coal:
History of the Coal Program, available at http://www.blm.
gov/wy/st/en/programs/energy/Coal_Resources/PRB_Coal/
history.print.html (last accessed July 2014).
9 Thomas Michael Power and Donovan S. Power, The Impact
of Powder River Basin Coal Exports on Global Greenhouse
Gas Emissions(San Francisco, CA: Energy Foundation, 2013).
10 U.S. Energy Information Administration, U.S. coal exports
on record pace in 2012, fueled by steam coal growth,
October 23, 2012, available at http://www.eia.gov/today-
inenergy/detail.cfm?id=8490.
11 Energy Information Administration, Annual Coal Distribution
Report (U.S. Department of Energy, 2012).
12 Jessica Goad, Plans for One Coal Export Terminal in Oregon
Dropped, Four Others Still Under Consideration, Climate
Progress, April 9, 2013, available at http://thinkprogress.org/
climate/2013/04/09/1839541/plans-for-one-coal-export-
terminal-in-oregon-dropped-four-others-still-under-consid-
eration/.
13 U.S. Government Accountability Ofce, Coal Leasing: BLM
Could Enhance Appraisal Process, More Explicitly Consider
Coal Exports, and Provide More Public Information; Ofce
of Inspector General, Coal Management Program, U.S.
Department of the Interior (U.S. Department of the Interior,
2013).
14 Tom Sanzillo, The Great Giveaway: An Analysis of the Costly
Failure of Federal Coal Leasing in the Powder River Basin
(Washington: Institute for Energy Economics and Financial
Analysis, 2012).
15 Council of Economic Advisers, Economic Report of the Presi-
dent (Executive Ofce of the President, 2013), p. 188.
16 This fgure is derived by considering the amount of carbon
contained in Powder River Basin coal in conjunction with
the estimated social cost of carbon from the Ofce and
Management and Budgets analysis, which was conducted
in consultation with leading academic modelers. The social
cost of carbon increases over time because carbon pollution
lingers in the atmosphere for many years. See U.S. Energy
Information Administration, Carbon Dioxide Emissions
Coefcients, February 14, 2013, available at http://www.
eia.gov/environment/emissions/co2_vol_mass.cfm; Ofce
of Management and Budget, Technical Support Document:
- Technical Update of the Social Cost of Carbon for Regulatory
Impact Analysis - Under Executive Order 12866 - (Executive
Ofce of the President, 2013), available at http://www.
whitehouse.gov/sites/default/fles/omb/assets/inforeg/
technical-update-social-cost-of-carbon-for-regulator-
impact-analysis.pdf.
17 Nidhi Thakar, Court Blocks Coal Mine Expansion For Not
Counting The Costs Of Carbon Pollution, Climate Progress,
June 30, 2014, available at http://thinkprogress.org/
climate/2014/06/30/3454764/court-blocks-arch-mine-coal-
expansion/.
18 Bureau of Land Management, Powder River Basin Coal
Production, available at http://www.blm.gov/wy/st/en/pro-
grams/energy/Coal_Resources/PRB_Coal/production.html
(last accessed July 2014). The social cost of Powder River
Basin coal for 2012 is based on the authors calculations.